Consumer Experience Transformed by Embedded Banking and Insurance
Authors: Sayantan Datta, Chayan Bandyopadhyay
Introduction
Every consumer-focused industry is trying to transform its customer experience, and a key touchpoint for achieving this are financial transactions. Financial services organizations, including banks and insurers, are developing offerings to tap into this unique opportunity to build new revenue streams and expand customer base. Embedded finance is the integration of financial offerings within the products, solutions, platforms of other industry players, to be delivered at the time of customers’ needs. For consumer products and services, embedded finance can create seamless customer experiences across diverse use cases with three key product categories, as follows:
Embedded Payments is the integration of digital payment options within the platforms and apps of non-financial companies. Embedded payments provide the ability to pay for products and services, without leaving a company’s website or app. Digital wallets, in-app card payments are key examples of this.
Embedded Lending refers to integration of credit facilities in the sales channel. Buy Now Pay Later (BNPL) is one of the emerging examples of embedded lending and allows consumers to make immediate purchases with deferred payment schedules. Easy integration of consumer credit history enables delivery of these loans instantly at the time of purchase. Co-branded credit cards provided by non-financial organizations are increasingly integrated with loyalty discounts and other customer service options.
Embedded Insurance covers bundling of insurance products with other financial or non-financial products and services. Embedded insurance products can be directly or indirectly related to items purchased at point of sale. Usually focused on insuring high value products such as electronic devices, consumer appliances, jewelry, among others. In addition, ride hailing transport services and air travels are increasingly getting bundled with travel insurance.
Embedded Finance in Consumer-focused Industries
Different consumer-focused industries provide a wide variety of customer touchpoints. Embedded finance is key to deliver seamless experience across those points of contact by bringing together financial and non-financial offerings. For example, a person buying a mobile handset in a retail store or e-commerce app will require payments to complete the transaction and may look for options for availing discount or loyalty offers, credit to buy the device and insurance to protect against loss. Similarly, a person availing healthcare will need in-app pay options for diagnostic tests or doctor appointments, and integrated health insurance. Embedded finance brings together a financial service provider and a non-financial organization to create these customer-centric experiences, generating value for all partners in the ecosystem.
The consumer-focused industries impacted by embedded finance are represented in the following figure.
Figure 1: Non-financial Consumer Industries Impacted by Embedded Finance
Industry Focus: Retail
Embedded finance enables retailers to deliver personalized experience to end users, while leveraging core financial infrastructure such as payments, lending, savings and insurance. Products such as co-branded credit cards can lead to additional shopping trips and spend from the customers. Even for smaller purchases, retailers offer options to pay in several installments – through BNPL. Customers can get their loans approved, without leaving the retailer’s website. They can also order groceries for pick up or delivery and can pay within the app or website through embedded options. Automotive retailers are using embedded finance traditionally. Auto dealers offer their own financing and customers can pay back their loans through digital channels. Some automotive companies have also started to provide discounted insurance from their subsidiaries in an emerging example of embedded insurance. Retailers can achieve new revenue streams through lending fees and other commissions. Moreover, embedded finance offers greater visibility of customer data and spending insights enabling higher personalization. Some fintechs are utilizing this business opportunity to deliver technology capabilities to retailers embedded with financial offerings.
Industry Focus: Healthcare
Embedded finance, when integrated into healthcare platforms, can simplify payment processes and make insurance claims more efficient. Consequently, healthcare transactions become more seamless, enhancing the patient experience. It enables patients to pay online and avoid going to banks or ATMs to collect cash or visit hospitals and pharmacies for offline payments. Internal processes of hospitals and medical centers can also be made more efficient through embedding purpose-built financial products into the software applications. Previously, siloed data required for seamless transactions were integrated through embedding financial credentials into healthcare data records.
There is also emergence of apps, which aggregate doctors across specific regions and create appointments on their behalf. Patients can directly pay the appointment fees on the app. This not only provides the doctors wider reach, but also gives patients flexibility to choose and pay seamlessly. In addition to getting access to new revenue streams and providing higher patient satisfaction, embedded finance can enable faster claims processing and data security through integration of healthcare and insurance systems. Healthcare fintech start-ups have started personalizing patient payment strategies, aligned with their affordability, leveraging technologies such as AI to create customized health plan.
Industry Focus: Mobility
Mobility or travel provides significant opportunities for embedded finance-driven experiences – with embedded payments, discounts, loans and insurance options. It starts with payment experiences, which currently varies widely across modes of transport. Ubiquity of smartphones enable in-app payment experiences for availing bus, train, ferry or any other public transport services. An interesting example in this domain is invisible ticketing and integrated travel insurance. Customers can open the app before boarding the public transport option and will be charged according to the destination where they are getting off. In-app payment experiences can be utilized even for digital booking options.
For travel over long distances, usually in trains or flights, there is significant option for in-journey commerce. Customers can buy products that they need during travel such as food, drinks or movies, or buy offerings that they need at the point of destination. If the products bought are of high value such as electronic devices or premium collectible items, customers can avail loans and protect them with insurance through in-app services.
For shared mobility services, drivers can be enabled with loan options for vehicle buying and maintenance. Additionally, customers who are focused on sustainable living, may win carbon discounts for choosing the eco-friendly mode of travel, such as shared mobility and electric cab or bus services. These discounts can be recognized within the mobility app to encourage sustainable consumer behavior with embedded finance partnerships.
Industry Focus: Media, Telecom and Technology
Media and Telecom industries have pioneered the subscription service model, which allows customers to pay for different service categories and durations with varied plans. In-app subscription payments will proliferate with embedded payments. Additional services such as on-demand rentals and seamless event experiences in concerts or theaters are new opportunities for embedded financial services in this industry.
Opportunity for embedded finance is moderate in these industries, as beyond payments and commerce services, other financial products such as lending or insurance have few use cases in Media, Telecom and Technology industries. However, some companies have launched digital banking services in select markets, to establish deeper customer relationships and leverage opportunities arising out of lower interest rates provided by traditional banks.
Industry Focus: Utilities
Utilities industry is now accelerating the adoption of new technologies. Embedded payments present opportunity for seamless in-app bill payment experiences for electricity, water, or gas supply. Some of the more innovative Utilities organizations explore pilots for subscription options and seamless payments for maintenance services. Opportunity for embedded finance is moderate in Utilities industry – focused on payment experiences.
Conclusion
Embedded finance services are expanding in alignment with increasing industrial convergence. It presents significant new revenue opportunities for banks, payments service providers, fintechs and insurers to integrate their regulated financial services and value-added offerings into non-financial consumer experiences. Consequently, new cross-industry ecosystems emerge to deliver increased market efficiencies and greater value realizations for all stakeholders. As industry ecosystems reorganize around the context of customer experiences, the impact of embedded finance will grow ever more, presenting both financial and non-financial institutions with significant innovation opportunities.
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About the Authors
Sayantan Datta (https://community.nasscom.in/user/59478/profile)
@ sayantan86
Expertise in growth and innovation advisory in Banking, Financial Services, and Insurance industry with 12+ years of market research experience. Worked in multiple research based advisory engagements with Fortune 2000 companies for their strategic transformation journey with industry benchmarks, parametric analysis, ecosystem considerations and sustainability orientations. Applied one patent and authored multiple thought leadership and academic papers on BFSI innovation and FinTech progressions. A Certified Financial Risk Management professional and a certified Cloud Digital Leader, Sayantan holds bachelor’s degree in computer science and engineering, and an MBA in Finance and Systems.
Chayan Bandyopadhyay (https://community.nasscom.in/user/63122/profile)
@ chayan bandyopadhyay
Provides research solutions pertaining to business transformations, innovations, market trends relevant to BFSI industry. Advisory skills include corporate business analysis, opportunity assessment, assessment of organizational strategic initiatives, technology transformations, among others. ~13 years of cross-industry experience spanning Banking, Insurance, Information Technology, Telecom, and Energy. Participates in awareness amplification events including round tables, conferences targeted towards banking innovations, and research publications. Applied one patent. A certified Cloud Digital Leader, Chayan holds a B. Tech. in Electronics and Communications and an MBA in Environmental Management.
